Just thirty years ago in Europe

I spent the Easter holidays in Prague, one of the European cities best known for its colorful history, beautiful architecture and fine breweries.

During my visit I toured the usual tourist attractions: Charle’s Bridge, the Prague Castle etc. I also visited the Museum of Communism, which gave some food for thought and some perspective on the current crisis in Syria we are witnessing.

It’s roughly thirty years since the fall of communism in the then Tsechoslovakia. In the Museum of Communism I saw videoclips from that time, thousands of people in the streets marching for their freedom and independence, against the unjust government, being sometimes violently dispersed by the police. Just thirty years ago the citizens of a European country were standing up against their own government for their freedom and independence, while also making a stand against the Soviet Union for external independence. And a few years later the Yugoslavian Wars started, lasting for ten years.

Not more than thirty years ago, or in the case of Yugoslavia even more recently, major civil unrest, uprisings and even wars took place in the middle of Europe, throwing people to similar fate as many Syrian citizens are now facing: homes being demolished, families broken apart, futures burnt to dust. I am too young to have any recollection of the evens in Tsechoslovakia or the first phases of the Yugoslavian Wars, but I cannot help but wonder, if we have forgotten the lessons from those events. If we have forgotten, how bad it is, when governments turn against their citizens, or neighbors against each other.

Have we forgotten, how we should help those who are not strong enough to defend themselves? Are we brave enough to make a stand. I hope we have not forgotten. I hope we are brave enough. As C.S. Lewis put it: “Integrity is doing the right thing, even when no one is watching.” And the whole world is watching. I am also trying to understand, why such events happen in the first place. Why do we want to hurt each other?

Since I am not helping directly at the crisis zone, I will do my small part by donating USD 300 (or a bit under 300 euros) to the UNHCR to help Syrian refugees.

Game theory – Mixed strategy equilibria

On the Yale web course on game theory by Ben Polak I have learned about Nash equilibria (NE) and also mixed-strategy NE. In lecture 10 Mr. Polak explains very well three different interpretations for a mixed-strategy equilibria by an example of paying taxes versus avoiding them. A mixed-strategy NE either:

  1. is a combination of randomized pure strategies played by an individual,
  2. reflects our expectations on how our opponent is going to randomize and deploy his pure strategies or
  3. is the proportion of people in a group each playing a single pure strategy.

My payoffs define your strategy mix

I have had to spent quite some time to really understand the concept of mixed-strategy NE, namely that my strategy mix is dependent on the payoffs of the other player and vice versa. Furthermore, changing my payoffs does not change my strategy mix but that of the other player, a concept that also seems at first somewhat counter-intuitive. The subtle point here is that neither I or my opponent is trying in any way to force the other player into the mixed-strategy NE, rather if we are to be in a mixed-strategy NE, then one player’s strategy mix is based on the payoffs of the other player, and neither player can do strictly better by deviating from his chosen strategy mix.

In the example of tax paying and tax audits (as described by Mr. Polak in the video), a mixed-strategy NE reflects the interpretation 3, different groups of people each playing a pure strategy. In case of taxes, the people playing the pure “tax evasion” strategy can be expected to be people benefitting the most from evading taxes, while those playing the pure “pay taxes in full” strategy can be expected to be those who have little to gain from tax evasion. Based on this idea Mr. Polak presents an argument of why increased penalties for tax evasion do not increase compliance on paying taxes.

Auditors’ payoffs effect tax compliance, penalties do not

If legislature is amended to increase the penalty for the evasion of income taxes, it does not increase the compliance for paying taxes, rather it decreases the number of audits. When a tax payer’s expected benefit from tax evasion is reduced (by increasing the penalty for tax evasion), less audits are required to reach an equilibrium state where an individual is indifferent between paying his taxes and evading taxes, when he might or might not be audited. Conversely, if the benefit from tax evasion increases, tax compliance, according to the model, does not deteriorate, rather more audits are conducted (on rich people) to keep the game in an equilibrium.

To increase compliance, the auditor’s payoffs would have to be increased. When increasing the penalties for non-compliance, the auditor’s payoff does not change Therefore the auditor has no added incentive to try to catch the people evading taxes. The auditor also has no incentive to realign his resources accordingly to increase the probability of finding tax evaders with the audits he is conducting. However, if an auditor’s payoffs for finding tax evaders are increased, he has the incentive to find them and will also re-align his resources accordingly. This will increase the probability of tax evaders being caught and thus increases compliance among those who have the higher incentives to avoid paying their taxes.

If the above seems unclear to you, I must admit that I am still myself struggling with these concepts. By writing them out I am trying to clarify my own thinking and hopefully give you some insights, too. One big lesson for me has been, that by applying game theory to common scenarios and everyday questions, we may get new insights and understand, why some actions and policies do not have the effect we might initially expect them to have.

Tumblr blog and data analytics

Last weekend I decided to open a Tumblr account to broaden my presence on the Internet and get more into contact with people and interesting topics. I also started a blog there, although I am not yet sure how often I will be posting there and how that will effect this blog. I hope to be posting here each week as this far and might be using Tumblr more as an idea and information channel.

I actually on Tumblr as  I was looking for good courses on data mining and data science and found this blog from IE Business School. During the last year I have increasingly been confronted with problems and questions that require ever more extensive analysis of data. Additionally, the available data is often dispersed between multiple sources, contains duplicates and inconsistencies and so on. This is nothing new in itself, just my own tangible experience of the increased importance of big data, a trend that started already years ago and is now omnipresent.

Being quite proficient with MS Excel, I have developed for myself and our team at work some rudimentary tools for aggregating and visualizing data. However, I have acknowledged from the beginning that these tools, developed last year, are very basic and do not allow us to gain deeper insights when the data is scattered and requires extensive normalization before being usable. Additionally, building advanced statistical or other mathematical models that can be tested with the available data is still beyond my skill set. But our team, among many others, needs such skills, and I have great interest in understanding the world via models and rigorous analyses.

I am taking a better look into the depths of data analysis by getting familiar with data bases and their usage for Excel based analyses. I hope this EdX course gives me skills I can directly transfer to my everyday work and also provides me an indication of which areas of data analytics and data science specifically would interest me and provide a field for further studies.

Nationalities and athletic performance for sale

Reading the newspapers this weekend, I spotted an article on a topic that has gone under my radar: buying athletes to gain success in international sports competitions. With buying of athletes I am not referring to illegal bribery, but to the practice of sponsoring a foreign athlete and having him consequently change his official nationality to that of the sponsoring country. This practice is nothing new, but has become more prevalent in recent years, as nations want more fame and fortunes. It is not just countries looking for the best talents but also athletes trying to find the best opportunitiesSome voices say that these practices of nationality and athlete shopping are worrying, if not outright morally wrong.

A knee-jerk response to the question on the fairness of these practices might be to condemn them as immoral since sports is about fair competition between nations and should be not driven by motives other than the joy of sport and competition.

When looking at such a counter-argument, as I present above, for trading athletic skills for money, it seems to be on shaky grounds. What is fair competition? Why should sports be done only for the joy of sport and competition? Yet another question is, if it is even relevant or desirable for nations or countries to compete against each other in sports. I will briefly discuss each of these questions and after that, I will draw the argument together with some analogies to the business world.

Sports and fair competition

If we say that sports, and especially sport competitions between nations, should be fair, I suppose we are requiring equal chances to win, equal chances to exploit potential or something similar. Without going too deep into a philosophical discussion on fairness, I just want to point out that even the concept of fairness is vague and not unlikely to vary between individuals. It is obvious that everyone prefers a “good” or “successful” life to a “bad” or “unsuccessful” one. Yet, we are not equally successful. But whether the observed inequalities are fair or unfair, is not always to decide. For those interested, I recommend reading John Rawls who has intensively studied fairness. In reading Rawls, it becomes clear that even equal chances to use our natural talents may not be fair. Thus, the requirement of fairness in sports would need a more rigorous definition to provide a good argument. In any case, I would claim that it is acceptable to pursue activities which you like, are good at and for which people are ready to pay.

Sports for the sake of sportsmanship

One argument against countries’ buying athletes into their national teams and athletes shopping for better prospects might be the concept of sportsmanship, the idea that sports is something pure and pursued just for its own sake. My immediate counter question is, why it should be so.

Many of us do sports, gymnastics, weightlifting, horseback riding, running, skiing and so on. Some of us train for health and fitness or to challenge our own limits. Some train for competitions where they can measure their skills against those of others. I’m inclined to think that many of these reasons belong or at least relate to the concept of sportsmanship, but they might just as well be goals on their own merit. We may play football on a Sunday afternoon with our friends just for fun, to spend time and rejuvenate from the hard workweek. But even then, I would argue, the purpose of the football game is to mingle with friends, recuperate and regain strength. These are stronger motives than just playing football for footballs sake.

The aspects of respect, ethics and fairness related to sportsmanship play a role in how we treat others during sports, but shouldn’t we always treat others with respect and according to high ethical standards? If we are to use these ideals to limit the number of ways how sports is to be pursued, why shouldn’t we also apply them in other areas of life? Why would it be any more acceptable for an office worker to move abroad after a better job and eventually change his nationality than for an athlete? I would argue that it is in both cases acceptable to maximize the benefits you can gain from using your skills, assuming that you are doing within the limits of the law.

Finally, the concept of fairness is still somewhat vague, so the concept of sportsmanship leaves us without a solid argument against our question on nationality shopping.

Utility and the competition of nations

The Olympic games are maybe the best example of a sports event where nations stand to find out who runs faster, jumps higher and is the stronger one. Winning sports competitions gives good publicity for countries, abroad and domestically. The politicians of a country with troubles in its internal affairs may receive a welcomed boost for their image, if their home country is successful in the Olympic games or other high profile sports events. Likewise, the individuals winning the respective competitions gain publicity, receive fame and fortune and can hope for even better opportunities in the future, as advertisers want to use them to increase sales, or the athletes can use the publicity to become known professionals in other areas of life.

Winning sports events can be seen as a consumable good like anything else, and people (and nations) have different preferences for goods. For example, ice hockey is quite liked in the USA and Canada so those countries have a high interest in getting the best players into their national teams, although their domestic supplies are already ample enough. Analogously, in Germany football enjoys high popularity so Germany could be argued to have a high interest in getting good football players into its national team, although here again the domestic supply is high enough. The main point is that if a nation receives benefit from trading something else for better performance in a sports activity, within legal boundaries, it should not trouble other countries. If some countries are willing to make that trade, two countries benefit. There might arise externalities that reduce the utility of other countries, but that can take place whenever people change their home country. Therefore, athletes changing country or nationality should not be seen as a special problem when compared to people in other professions.

As the people in today’s world are connected with each other, and people from different countries work together, the old meaning and purpose of nationality seems less important. Does it then matter, if an athlete has little or no connections to the country he is representing? Companies hire consultants to work for them, mainly to benefit from the consultant’s expertise. Companies also cooperate with celebrities for marketing purposes, paying for the use of a celebrity’s fame in hopes for increased sales. But these consultants or celebrities do not necessarily have any deeper connection to the company that is just one client among others. Likewise, an athlete could treat a country as a client, who buys his services in hopes of increased fame, visibility and financial benefits.

Pursuing talent in sports and business

We often hear about successful companies and their managers, but the home countries of these companies are less often at the center of the view. Countries may of course provide good policies, legislation and infrastructure for companies to flourish, but it is in the end the company that gets the most credit for its own success. Why shouldn’t this be the case with athletes? Furthermore, why shouldn’t countries try to get the best athletes into their teams and athletes go and grasp the best possibilities they are offered?

Countries try to get companies to invest in them, and individuals take jobs in those companies and countries that give them the best prospects. Since an athlete’s job is to compete in sports and, at least to some degree, entertain the audience, why shouldn’t he look for the best possible employer and the best possible country for pursuing his profession? On the other hand, why shouldn’t a country try to improve its success in the field of sports by offering good working conditions for athletes and recruiting talents from abroad? If we still accept that everyone wants a good life and that it is acceptable to maximize the benefits from your profession and if we also add the premise that a good life entails some degree of material well being, the conclusion is that athletes should be allowed to change their nationalities if they are so better off. Likewise, countries should be allowed to offer athletes citizenships. This all of course assumes that the actions take place within the boundaries of the law.

Who gets the spoils?

One piece of criticism against athletes changing their citizenship is the fact that their parents may not be following them, but stay at their, possibly poorer, home country.

But don’t all parties benefit, if a young talented athlete represents a foreign country, is paid well and can use his money to help his parents in his poor home country? This same practice takes place among people who are doing other jobs, coming from poorer to richer countries and sending money back home to help their families.

Arguably the initial media publicity from winning a sports event and the ensuing benefits in reputation and the monetary goods go mainly to the country an athlete is representing, but depending on his contract the athlete may be able to represent his home country later on. And when asked about his background, the athlete is able to promote his original home country, so it is not obvious that the arrangement would not be beneficial to all.

Even if money is not the main question, an athlete is likely to benefit if he is able to train and compete more often with the best and learn from them. Being the only super star in a losing team may not be equally satisfying as being among the middle-class in the world’s best team. In addition, a team may benefit more than the new team member’s individual skill set might suggest, if there are benefits arising from complementary skills between the team members. The audience may also enjoy the following sports events even more when they see more exiting matches or their favorite team becomes more successful. Of course, such changes come at the expense of other teams losing and some athletes not being able to play in the vest teams. Therefore, these externalities would have to be smaller than the added benefits, if we are to claim the change as beneficial as a whole. But in any case I would not claim that athletes changing nationalities and countries going for foreign athletes in hopes of more success in sports is wrong or necessarily counter-productive.

The idea of talented people moving abroad to improve their quality of life is discussed in the newspapers every now and then. Countries have to stay competitive, i.e. offer their citizens the possibilities for a good life, in order to avoid too many talented people moving abroad. If too many move abroad, a country’s capability to offer good opportunities to future generations gets undermined, as the current generation has less talent at its disposal. Another question is, how prevalent such changes are. If most people stay in their original home country, the flow of people between countries should not excessively undermine any country’s future. Quite the contrary, like with international trade, people moving abroad is likely to be beneficial because talents meet, get pooled and are able to combine their efforts more effectively and efficiently. As discussed before, some countries may also have different preferences for different goods and different capabilities for producing those goods. Therefore athletes, and people in general, moving between countries to maximize their potential may not be just acceptable, but also recommendable, for the benefit of individuals and a nation.